JPY carry trades – DBS

The Japanese Yen (JPY) has rebounded from a record under-valuation in the wake of BOJ’s rate hike in July, accompanied by a reduction in the pace of JGB purchases from JPY6trn per annum to about JPY3trn in Q1 2026, DBS FX strategist Chang Wei Liang notes.

USD/JPY may try to break above 150 again

“Markets have been wrong-footed by the BOJ’s determined stance to normalize interest rates. This resulted in a sharp unwind of yen carry trades, bringing USD/JPY down to as low as 142.”

“Going forward, the BOJ’s policy position will be closely watched, and uncertainty of the BOJ rate trajectory could restrain markets from returning aggressively to JPY-based carry trades. Furthermore, Japanese politicians have become more averse to a weak JPY.”

“Japan had intervened to support the JPY in April-May as well as July this year, and risks of intervention are heightened if USD/JPY is to trade above 150 again.”